Another major drug company agreed to settle with the Department of Justice (DOJ). GlaxoSmithKline LLC (GSK) agreed to pay a historic $3 billion and plead guilty to resolve its alleged criminal and civil liability arising from the company’s promotion of certain prescription drugs, failure to report certain safety data, and its civil liability for alleged false price reporting practices.  GSK also entered into a Corporate Integrity Agreement (CIA) with the Office of the Inspector General (OIG).  While the settlement payment is the largest in history, the CIA contains provisions never before seen in such a settlement but may have far reaching repercussions for the health care industry.  The settlement agreement and five-year CIA require that GSK implement and/or maintain major changes to the way it does business.  According to the DOJ, this agreement is designed to increase accountability and transparency and prevent future fraud and abuse.  Included in the CIA are requirements that change the way GSK’s sales force is compensated – now by quality of service rather than based on sales goals for territories, which the DOJ asserts was one of the driving forces behind much of the conduct at issue in this matter.

The CIA also requires changes to GSK’s executive compensation program to permit the company to recoup annual bonuses and long-term incentives from covered executives (both current and former) if they, or their subordinates, engage in significant misconduct.  GSK must set up a deferred compensation plan that defers 10%-25% of the covered executives’ annual bonuses, to be matched 1:1 by GSK, and maintained for 3 years.  These funds will be available should there be a need to recoup funds as allowed and required under the CIA.  Other provisions require GSK to implement and maintain transparency in its research practices and publication policies and to follow specified policies in its contracts with various health care providers.

Our Insight.  Your Advantage.  In our experience, when new provisions are added to one CIA, they begin to be used in subsequent CIAs, thus becoming “boilerplate” language that is difficult, if not impossible, to remove.  We have seen more langague in CIAs directed to Boards of Directors for healthcare companies.  The GSK CIA expands those requirements to include recoupment of bonuses paid to corporate executives.  It is very likely that future CIAs will include similar language for providers with bonus packages for executives.